By Ronald L. Perl, Esq.

Over the past year, there has been discussion about a proposed federal rule which would have prohibited FNMA or Freddie Mac from purchasing mortgage loans for lots or units in community associations having a capital contribution/membership fee requirement. CAI’s Federal LAC was part of a coalition that opposed this rule against transfer fees in associations. Those efforts paid off as FHFA’s Final Rule, which was issued on March 15, 2012, to be effective on July 16, 2012 permits “a private transfer fee covenant that requires payment of a private transfer fee to a covered association and limits the use of such transfer fees exclusively to purposes which provide a direct benefit to the real property encumbered by the private transfer fee covenants.”

Significantly, all association transfer fees in place before February 8, 2011 (date of publication of the initial Notice of Rulemaking by FHFA) are exempted and all those created thereafter as permissible if they provide a “direct benefit” to the properties encumbered by the fee. The term “direct benefit” means “that the proceeds of a private transfer fee are used exclusively to support maintenance and improvements to encumbered properties, and acquisition, improvement, administration, and maintenance of property owned by the covered association of which the owners of the burdened property are members and used primarily for their benefit.” In simple terms, most association membership fees, capital contributions and other fees due upon the transfer of a unit or lot are acceptable if they are used to manage, maintain, protect or operate the facilities of the community. However, it is important to read the full rule, which can be found here.